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How to decide whether to hike, reduce, or keep constant the FFR?
At each meeting, the Committee:
▫ assesses how current and projected economic conditions stand relative
to its long-run goals
– Summarized in the first and second paragraphs of the FOMC statement
▫ accounts for the potential trade-offs in closing projected inflation and
employment/unemployment gaps
– This is based on participants’ views on how he economy operates, i.e. the mechanism of
transmission and its ‘long and variable lags’
– Research staff plays a key role in affecting these views through data analysis, historical case
studies, evaluation of policy alternatives, model-based simulations…
▫ debates extensively pros and cons of alternative choices
– Based on participants’ views of costs and efficacy of alternative options
– A summary of these debates, without attributions, appears in the minutes of the meetings,
published three weeks after the meetings
– More comprehensive transcripts are released five years later
▫ votes on a specific action
– Voters in favor and against are identified in the FOMC statement
That was fun. Now, about making policy in practice…